China Orders 6 Telecoms to Merge Their Assets

Monday

May 26, 2008 at 4:56 AM

The move would allow fixed-line carriers to expand into wireless services and create three operators that will offer phone and Internet connections to 1.3 billion people.

China has told its six telecommunications companies to merge their assets, allowing fixed-line carriers to expand into wireless services and creating three operators that will offer phone and Internet connections to 1.3 billion people.

Under the plan, the parent of China Telecom will buy a mobile phone network from the parent of China Unicom, which in turn will merge with the company that controls the China Netcom Group, the Ministry of Industry and Information said in a statement on Saturday. China will issue three third-generation wireless licenses after the overhaul is completed, it said.

The revamp will help China Telecom and Netcom expand their operations to compete against China Mobile in China, the world’s biggest wireless and Internet market by users.

China had 583.5 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. But the $105 billion industry has room to expand because 6 out of 10 people in China still do not own mobile phones and 84 percent of the population lacks Web connections.

“Everyone has been waiting for it for over three years and now it is here,” said Kelvin Ho, a Hong Kong-based analyst at Nomura International, referring to the reorganization plan. “Creating three full-service phone companies offering both fixed and mobile services will help the fixed-line phone companies.”

The statement, jointly issued with the Ministry of Finance and the National Development and Reform Commission, did not give a timeframe for the plan or financial details.

China Telecom said in a statement on Sunday that it was in talks to buy Unicom’s code-division multiple access technology business, or C.D.M.A. — the technology that is used in Japan and South Korea. The companies have not agreed on a price. In a separate release, Unicom confirmed those talks and also said it was discussing a merger with Netcom.

Trading in shares of Netcom, China Unicom and China Telecom was suspended on Friday at the companies’ request after a report from the official Xinhua News Agency prompted speculation that China was poised to announce its plans for the industry. Trading will continue to be suspended in Hong Kong pending further announcements, according to the statements.

China Mobile, which has nearly 400 million customers and is the world’s largest phone company by users, fell the most in two months in Hong Kong trading. The drop wiped out $12.8 billion in market value on concern that the company would face increased competition.

China Telecom, the nation’s biggest fixed-line company, will acquire Unicom’s smaller mobile-phone network, which provides services to 43 million customers based on the C.D.M.A. technology, according to the statement. China Telecom will also get the phone assets of China Satellite Communications, the statement said.

Unicom’s C.D.M.A. network, the smaller of the company’s two wireless networks, and its subscribers are worth about 111 billion yuan ($16 billion), according to estimates by Goldman Sachs in a March report.

The China Network Communications Group, Netcom’s parent, will merge with Unicom’s parent to offer fixed-line and mobile phone services based on the global system for mobile communications technology, or G.S.M., which is the technology used in most of the world, according to the statement.

Unicom had 125.4 million G.S.M. customers as of the end of April, according to the company. Netcom, the nation’s second-largest fixed-line company, had 108.7 million phone users.

China Mobile, which counts more than two-thirds of the nation’s mobile phone users as customers, will take control of the unlisted Tietong, the statement said, confirming the Xinhua report.

Chinese regulators aim to boost competitiveness at fixed-line operators before the nation introduces 3G high-speed wireless services, which will require billions of dollars in investments for network equipment. The government has said it plans to offer 3G during the Olympic Games in August.

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